Chapter 13 & 15 Market and Mixed Economic Systems

Section 2
Chapter 13 & 15
Market Economic system
Mixed economic system
Q1. What is a Market economy?
 A market Economy is one in which Consumers decide what is produced. They

signal their preferences through the price mechanism. If they want more of
a product, they will be willing to pay a higher price for it. The higher price
encourages producers to produce more of those goods.
 Government intervention is minimum
 Land and Capital are privately owned.
Q2. What are the Advantages of a Market Economy?
 It is very responsive to changes in consumer demand. Consumers are sovereign.
 Consumers have choice of a variety of high quality goods.
 Low prices due to competition.
 Allocation of resources is efficient.
 Profit motive improves efficiency.
 Incentive to work harder due to high incomes.
Q3. What are the disadvantages of a Market Economy?

 Consumers and Private sector firms only take into account the costs and
benefits to themselves and not the costs and benefits imposed on others.eg
cost of air pollution, dumping waste into the rivers. (Environmental hazards)
Resulting in market failure.
 A market may become dominated by a few firms who have considerable power.
They can abuse their market power by charging high prices and producing poor
quality goods, resulting in limited choice and high prices.
 Firms will not produce products unless they can charge a price for them. Public
goods like defence and street lighting may not be produced as it is not possible
to exclude the non- tax payers from taking benefit, resulting in free riders.
 Advertising may distort consumer choice.
 Some people are very rich while some people may be very poor. There can be
uneven distribution of income.
Q4. What is a Planned/Command Economy?

In a planned economy, the factors of production are owned and managed by the
government. Thus the Government decides what to produce, how much to produce
and for whom to produce.
Q5. Describe the features of a planned Economy

 All resources are owned and managed by the government.
 There is no Consumer or producer sovereignty.
 The market forces are not allowed to set the price of the goods and
services.
 Profit is not the main objective, instead the government aims to provide
goods and services to everybody at affordable rates. Their objective is
public welfare and peace and stability within the country.
 Government decides what to produce, how to produce and for whom to
produce.
Q6. What are the advantages of a planned Economy?
 Prices are kept under control and thus everybody can afford to consume
goods and services.
 There is less inequality of income and wealth.
 There is no duplication of resource allocation as the allocation of resources
is centrally planned.
 Low level of unemployment as the government aims to provide employment to
everybody.
 Elimination of waste of resources resulting from competition between firms
is reduced. Eg advertising and promotional expenditure is reduced.
 Govt. provides public and merit goods for the people.
Q7. What are the disadvantages of a Planned Economy?
 Consumers cannot choose and only those goods and services are produced
which are decided by the government. NO CHOICE.
 Lack of profit motive may lead to firms being inefficient. Costs may rise, and
resources are allocated inefficiently.
 It takes long time to make the decisions because everything is decided by
central planning authority.
 Lot of time and money is wasted in communicating instructions from the
government to the firms. The government gives instructions to firms
through directives.
Q8. What is a Mixed Economy?
It is an economic system where there is coexistence of both private sector &

public sector. This usually means an economy that contains both privately-owned
and state-owned enterprises or that combines elements of capitalism and socialism,
or a mix of market economy and planned economy characteristics. This system
overcomes the disadvantages of both the market and planned economic systems.
Q9. What are the features of a Mixed Economy?
 Resources are owned both by the government as well as private individuals.

i.e. co-existence of both public sector and private sector.
 Market forces prevail but are closely monitored by the government.
 There is motivation for everyone (producer, consumer, workers).
 Producer, consumer, workers have freedom of choice.
 Govt. makes provision for public & merit goods.
 Social costs are controlled by govt. through taxation, ban, regulation etc.
Q10 Describe the advantages of a Mixed Economy
 Producers and consumer have sovereignty to choose what to produce and

what to consume but production and consumption of harmful goods and
services may be stopped by the government.
 Social cost of business activities may be reduced by carrying out cost-
benefit analysis by the government.
 As compared to Market economy, a mixed economy may have less income
inequality due to the role played by the government.
 Monopolies may be existing but under close supervision of the government.

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Section 2

Q1. What is a Market economy?

 A market Economy is one in which Consumers decide what is produced. They

Q3. What are the disadvantages of a Market Economy?

Q4. What is a Planned/Command Economy?

Q5. Describe the features of a planned Economy

Q6. What are the advantages of a planned Economy?

Q7. What are the disadvantages of a Planned Economy?

It is an economic system where there is coexistence of both private sector &

Q9. What are the features of a Mixed Economy?

 Resources are owned both by the government as well as private individuals.

Q10 Describe the advantages of a Mixed Economy

 Producers and consumer have sovereignty to choose what to produce and

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